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borrowing - Coggle Diagram
borrowing
personal loan
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benefits
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- No collateral requirement
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- Flexibility and versatility
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drawbacks - Interest rates can be higher than alternatives.More eligibility requirements.Fees and penalties can be high.Additional monthly payment.Increased debt load.Higher payments than credit cards.Potential credit damage.
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Example of Personal Loan
A personal loan might be used when someone is purchasing a new car. The individual may not be able to pay the full price and will have to take a loan out to fund it.
Personal loans can be secured, meaning you need collateral to borrow money, or unsecured, with no collateral needed.
you might use a personal loan to cover: Moving expensesDebt consolidationMedical billsWedding expensesHome renovations or repairsFuneral costsVacation costsUnexpected expenses
Do Personal Loans Have Fees? A personal loan can include fees such as origination fees, which are added to the total cost of the loan.
payment loan
definition
a relatively small amount of momey lent at a high rate of interest in the agreement that it will be repaid when the borrower receives their next wages
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Mortgage
Definition
A bank or building society lending money with added interest in exchange for getting the right to take the property if the borrowed money is not fully paid back, e.g. taking out a mortgage on a house.
Example
Individuals and businesses use mortgages to buy real estate without paying the entire purchase price upfront
Benefits - continue to remain the legal owner of the property while using funds from the loan to fulfil needs, mortgage loans are easily approved as they are secured, interest paid on a mortgage loan is less than a personal loan.
Drawbacks
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Paying interest: When paying a mortgage, some of your money is going toward the interest. ...
Risk of rate change: If you don't have a fixed-rate mortgage, you risk your loan's interest rate increasing
Hire Purchase
Defintion
A hire purchase, also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment and repaying the balance of the price of the asset plus interest over a period of time.
Example
People who would use A hire purchase are ones who might not be able to pay the full amount upfront for the product/item so they opt to pay in installments. Common amongst people 25-34
Benefits of a Hire Purchase include: the interest rate is fixed, option to pay off the loan early, you will the product at the end of the agreement, allows you to spread the cost over a fixed period of time, can access newer products without paying in full.
Drawbacks
The loan is secured against the vehicle. With a hire purchase agreement, you're in a fixed contract
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Overdraft
Definition/ Example
An overdraft lets you borrow extra money through your current account. For example, if you have no money left in your account and you spend £30, your balance would be -£30. This means you're using an overdraft. An overdraft is a form of debt and is repayable on demand.
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